An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ya - Wen Yang
University of Miami

Dewayne L. Searcy
Auburn University

Kay W. Tatum
University of Miami

Abstract: We examine how corporate governance structure affects biotech firms' market valuation and long-term financial performance of R&D investments. The biotech industry is characterized by its large R&D investments with uncertain payoffs. Absent monitoring and bonding, the management can make suboptimal investment decisions to maximize their own benefits at shareholders’ expenses. Corporate governance reduces agency problems and aligns the interests of managers and shareholders. Our results show that the market valuation and financial performance of biotech firms’ R&D investments depend critically on the firms’ corporate governance structure.

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